Wednesday, November 12, 2014

The gears are coming off.

"Mortgage rates—and applications—barely moved last week. Total application volume fell 0.9 percent from the previous week on a seasonally adjusted basis, according to the Mortgage Bankers Association. Applications to refinance, which saw a brief surge on lower rates in October and then a precipitous drop when rates rose again this month, fell 2 percent from the previous week. Mortgage applications to purchase a home rose 1 percent from the previous week but are still 11 percent below year-ago levels. "
I've actually been a little surprised rates didn't tick right up after the end of QE. Up until today it was still a 50/50 chance you'd get a rate under 4%. Although the rates on the other side of 4% were getting pretty high. You could either find a rate in the 3.87 range, or the 4.30ish range. For the past few months those numbers had been clustered closer together in the slightly over 4% range.

That made me feel like the economy was still severely weak. The banks payed their hands last summer when they started raising rates before the Fed did. If things were that great - rates would rise without the Fed. But.... people are going to want a higher yields for taking over the risk from the Fed. So rates will rise now.

There is almost zero appetite for this. You can see already there are going to be huge problems. And pretty soon. Anyone who can, has refi'd. Those who haven't, can't. This is still 17% of homeowners. These people likely will not move. They have a ton of skin in the game.

I got up the nerve to ask that guy I know if he'd made it through the process yet. It's a sensitive subject. He's still paying 7%. The last time I asked was over the summer. To my shock he said no. He's been trying all year. I mean literally since January. He's one of those 17%.

There is absolutely nowhere to go for the Fed. It isn't like they can make rates lower. It's almost a worse situation than 2008. Then, the banks just wouldn't lend. But all these people now are in pretty sweet low interest loans. They are going to camp out.

It's no wonder new houses had a slight gain - what else are people are people going to buy when you have those two forces? This market is grinding to a halt.